A psychologist was entitled to coverage after the court determined the professional liability policy's Knowing Wrongful Act Exclusion was ambiguous. See Am. Home Assurance Co. v. Pope, No. 08-2848, 2010 U.S. App. LEXIS 516 (8th Cir. Jan. 11, 2010).
Sparing you of the tortuous procedural history (running on three tracks: arbitration; up and down the Missouri state courts; three appeals to the Eighth Circuit), we cut right to the chase. The insured psychologist's patient was a minor victim of sexual abuse by a foster parent. The psychologist never notified state officials of the abuse, although he was obligated by law to do so.
When the victim sued the psychologist, American Home denied coverage under the Knowing Wrongful Act Exclusion. The district court found the insured knew of his duty to report sexual abuse to authorities, yet intentionally concealed the abuse. Therefore, there was no duty to indemnify.
The Eighth Circuit reversed. There were two policy provisions at issue. First, American Home agreed " to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any wrongful act committed during the policy period by the Insured . . . ." "Wrongful act" was defined as "any actual or alleged negligent act . . . ." The second provision excluded "any wrongful act committed with knowledge that it was a wrongful act."
Comparing what was covered with what was excluded demonstrated the ambiguity. A "wrongful act" defined as "any negligent act" was insured, yet liability for a knowingly wrongful act was excluded. Predictably, the parties presented two interpretations of the competing provisions. American Home argued because the insured knew he had a duty to report and violated the duty, a knowingly wrongful act was committed, thereby negating coverage. The insured, on the other hand, contended that the Knowingly Wrongful Act Exclusion excluded intentional, not negligent, conduct, which required a showing that the insured intended to harm the victim. Given this ambiguity, the court adopted the construction most favorable to the insured, obligating American Home to insure the negligent conduct.
